Help Centre

Gillard’s Chinese game changer

As Julia Gillard leads Australia closer to China, there are some risks in our increasing economic dependence. But new, efficient labour practices are also broadening our opportunities.

Last night at the ADC Future Summit on China and in her KGB interview afterwards, Prime Minister Julia Gillard took Australia a clear step closer to China. Partly as a result, if there is a serious dispute between the US and China, as China replaces part of the US influence in the region, Australia would suffer serious economic consequences unless it sided with China.

But the Australian Prime Minister explained to the KGB that the US and China were working together and there was regular and widespread contact between the two super powers. As a result a serious dispute was highly unlikely so Australia was able to pursue both closer and wider economic ties with China (including joint naval exercises), and maintain and increase its strategic relationship with the US, which includes stationing US troops in Australian soil.

Julia Gillard had the KGB captivated as she explained how the Australia/US and Australia/China relationship would work. Readers will be equally captivated when they watch the video.

The opinion polls give Julia Gillard only a small chance of re-election in September but Tony Abbott will face the same set of decisions and I don’t think he will alter the basic Gillard policy.

But had either Gillard or Abbott attended the earlier sessions at the ADC China Summit they would have better understood the risks. Many speakers expressed serious doubts as to whether the US would accommodate the rise of China in the region and the address by President Barack Obama to the Australian parliament was about containing China. By contrast a subsequent address by Hilary Clinton was much more accommodating to the rise of China.

Clearly this is a game with risk for Australia and I put to Julia Gillard that it was possible that our US and China strategies could see Australia lose the backing of both the US and China if there was a serious dispute. Gillard discounted the possibility of a serious dispute.

The Australian economy is already very dependent on the Chinese economy via resources and the new resource projects will increase that dependence.

Gillard explained last night that she wanted the trade relationship extended on a wide series of fronts lead by food, including food processing. What she did not say was that a series of international companies in years gone by had signed union deals in food processing that made their plants uneconomic and so over time investment was restricted. One by one the international food giants have closed their plants and headed offshore with their tails between their legs.

Modern plants with efficient labour practices are replacing them. The new Murray Goulburn milk processing plant proposal is a great example.

Gillard believes that we can expand inbound tourism and education while exporting services including public policy, health, and superannuation. With a mischievous touch she also mentions carbon-pricing policy, which Tony Abbott plans to exit should he win power.

Another debate at the summit was whether the huge demand for resources over the last four years would fade in the next four years. There were different views but the great Chinese entrepreneur Ronnie Chan told the KGB and the summit that the continuing urbanisation of China would maintain a strong demand for our minerals.

However China faced major labour retrenchments as a portion of the Chinese manufacturing industry swung back to the US and there was increased use of robots in China. Many of the people displaced would return home and be employed in services. Nevertheless employment in this new environment would be a big problem for China – but it would be even larger for India.

And Chan frankly admitted that corruption was a big problem in China but pointed out that sales of watches and jewelry in his retail stores had slumped, which was a clear sign that corruption was on the decline.

IMPORTANT: This information has been prepared without taking into account your objectives, financial situation or needs and you should consider if the information is appropriate for you before making an investment decision. Unless otherwise specifically stated or disclosed (such as the InvestSMART Diversified Portfolios Product Disclosure Statement), neither InvestSMART Financial Services Pty Ltd nor any of its Related Companies make any recommendations as to the merits of any investment opportunity referred to in its emails or its related websites. Product disclosure statements for financial products offered through InvestSMART can be downloaded from this website or obtained by contacting 1300 880 160. You should consider the product disclosure statement before making a decision about the product. All indications of performance returns are historical and can not be relied upon as an indicator for future performance.